An Empirical Examination of Factors Affecting the Timing of Environmental Accounting Standard Adoption and the Impact of Corporate Valuation

Posted: 20 Nov 1999

See all articles by Yue Li

Yue Li

University of Toronto - Joseph Rotman School of Management

Bruce J. McConomy

Wilfrid Laurier University

Abstract

This paper assesses factors associated with firms' adoption of a new Canadian accounting standard promulgated in 1990, which requires disclosure of future removal and site restoration costs. Empirical analysis shows that adoption of the new standard by mining and oil and gas companies was influenced by a variety of factors and that disclosure of provisions for future removal and site restoration costs is valuation-relevant. More specifically, firms with a strong environmental commitment and in better financial health and those with less inherent uncertainty regarding future removal and site restoration costs were more likely to voluntarily adopt the new standard early. In addition, firms that adopted the new standard by the mandatory adoption date were more likely to have been audited by a Big 6 audit firm and to have raised capital during the year. Valuation analysis based on Ohlson (1995) suggests that disclosure of the provisions is valuation-relevant as it may enable capital markets to proxy for future removal and site restoration liabilities.

JEL Classification: M41, M44, G12

Suggested Citation

Li, Yue and McConomy, Bruce J., An Empirical Examination of Factors Affecting the Timing of Environmental Accounting Standard Adoption and the Impact of Corporate Valuation. Available at SSRN: https://ssrn.com/abstract=186171

Yue Li (Contact Author)

University of Toronto - Joseph Rotman School of Management ( email )

Joseph Rotman School of Management
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-0857 (Phone)
416-971-3048 (Fax)

Bruce J. McConomy

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710, x2890 (Phone)
519-884-0201 (Fax)

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